Topping process roadmap

S&P 500 bulls missed a good opportunity to take prices higher in spite of the sharp media-term deterioration essentially since the taper announcement. It‘s the Fed and not Omicron as I told you on Wednesday, but the corona uncertainty is reflected in more downgrades of real economic growth. There are however conflicting indicators that make me think we‘re still midway in the S&P 500 topping process and in for a rough Dec (no Santa Claus rally) at the same time, and these indicators feature still robust manufacturing and APT (hazmat manufacturer) turning noticeably down.

Still, it‘s all eyes on the Fed and its accelerated tapering intentions (to be discussed at their next meeting) as they finally admitted to seeing the light of inflation not being transitory. The ever more compressing yield curve is arguably the biggest watch out and danger to inflation and commodity trades – one that would put a question mark to the point of answering in the negative whether we are really midway in the topping process. Another indicator I would prefer turning up would be the advance-decline line of broader indices such as Russell 3000. And of course, HYG erasing a good deal of its prior sharp decline, which I had been talking often last week – until that happens, we‘re in danger of things turning ugly and fast, and not only for stocks should 4530s decisively give.

In spite of decreasing yields, the dollar continues acting on the bullish argument introduced 2 weeks ago. Seeing antidollar plays struggle (part of which is the function of inflation expectations drifting lower on the Fed‘s turn – let‘s see when the central bank breaks something, which is a story for another day), is truly a warning of downside risks having sharply increased since Thanksgiving. Not only for stocks, where we might not be making THE correction‘s low but also for commodities, cryptos and precious metals. In a series of two tweets yesterday, the warning is in regardless of a smooth Monday ahead.

Let‘s move right into the charts.

S&P 500 and Nasdaq outlook

S&P 500 bears are looking a bit tired here, and the room for an upswing is getting evident. The surge late on Friday concerned both tech and value, thankfully – overall, the market breadth isn‘t though much encouraging.

Credit markets

HYG did successfully defend gained ground, and strength appears very slowly returning – the gains have to continue to sound the all-clear, for considerably longer. As said on Friday, the sharpest rallies happen in bear markets, so all eyes are on HYG proving us either way.

Gold, silver and miners

Precious metals are looking fairly stable at the moment – not ready to decline, and still taking time to rebound. The accelerated taper idea didn‘t take them to the cleaners – the real fireworks though still have to wait till the Fed gets really close to choking off growth.

Crude oil

Crude oil could keep the intraday gains but appears base building here – similarly to natgas, this is a medium-term buying opportunity as prices would inevitably recover.

Copper

Copper prices reflect the combined Fed and (to a lesser degree) Omicron uncertainty – it‘s casting a verdict about upcoming real economic growth, and the red metal is still looking undecided, and merely gently leaning towards the bulls.

Bitcoin and Ethereum

The bearish ambush of Bitcoin and Ethereum was reserved for the weekend, and the bleeding hasn‘t stopped so far.

Summary

S&P 500 looks to have reached the low, but the jury remains out as to whether that‘s THE low. I highly recommend reading today‘s analysis for it lays out the key metrics to watch in its opening part. The nearest days and weeks will be of crucial importance in determining whether the worst in the stock market and commodities correction is behind us, or whether we still have some more to go.